I May Have Been Wrong About Macroeconomics

When I was an undergraduate studying macroeconomics, I came to the conclusion that it was pretty much total bullshit. Because I was in a co-terminal masters program, I was also studying graduate level decision theory, game theory, microeconomics, behavioral economics, and dynamic systems. In comparison, it seemed clear to me that macroeconomics was not a coherent study of a complex system.

Lately, Arnold Kling’s blog posts have been reinforcing this belief. However, we may both be wrong. Arnold studied and practiced macroeconomics in the late 1970s. Given the delay in propagating knowledge to the undergraduate level, that’s probably also what was taught in my late 1980s undergraduate textbook. However, Will Ambrosini observes that Arnold’s views are outdated and this is a problem with non-macro economists in general. He points to this essay and I find myself convinced that modern macroeconomics is a coherent study of a complex system.

I thought this might provide you some measure of comfort. If anyone wants me to summarize the particulars of why I changed my mind, let me know.

I was actually wondering if of anyone who wasn’t already an expert on this topic was curious about my reasons. For the cognoscenti, my objections to what I learned in macro were pretty much addressed by Woodford’s points (1), (2), and (3). By simply inverting those strengths of current macro, you have my perceived weaknesses of “old school” macro.

As a bonus point for those who know Rafe and me personally, I actually should have realized my conception of macro was outdated back in graduate school. Rafe and I were roommates with another friend who was a PhD candidate in economics at the GSB. He once asked to borrow my dynamic systems book to get some background on the math they were doing in his advanced macro class. If I had been paying closer attention I would have realized that something important was up in macro circa 1991.

Uh, Schaef, you might want not want to site that as evidence supporting the theory that “econ isn’t bullshit”. Rational agent and equilibrium assumptions are exactly what the critics harp on. There is better evidence than Lazear’s that econ is only pseudo-bullshit 🙂

I don’t think this article directly relates to your points, Kevin, but I found this article by Krugman from the NY Times Mag two weeks back pretty interesting. Talks about the current state of macroeconimic theory in language I could comprehend: